IIMC Working Paper: 328-1998 (February) 0

INDIAN INSTITUTE OF MANAGEMENT CALCUTTA

WORKING PAPER SERIES

WPS No. 328/ Feb. 1998

Telecom Sector: Achieving Sustainable Corporate Growth

by

Ram Kumar Kakani and R. Sridev

Fellow Students, IIM Calcutta, Diamond Harbour Road, Joka P.O., Kolkata 700 104 India
IIMC Working Paper: 328-1998 (February) 1

Telecom Sector: Achieving Sustainable Corporate Growth

Ram Kumar Kakani and R. Sridev
Indian Institute of Management Calcutta 700 107, India
E-mail: kakani@iimcal.ac.in and sridev@iimcal.ac.in

Abstract

The paper presents a framework for achieving a sustainable corporate growth strategy for the Indian
telecom sector. One sector in India where there is huge potential for sustainable growth is the telecom
sector. Generally, a monopoly, the sector is technologically intensive and is characterised by
decreasing costs of operation with increasing scale and scope economies. Strategies for sustainable
growth should be rooted on sensible strategic analysis based on the firms distinctive abilities and
competencies. Based on this analysis, the appropriate implementation sequence has to be identified.
The success and failure of the sequence of initiatives should provide valuable learning which acts as
the most important ingredient in the organisational building activities. This learning is also essential in
pointing out the errors made in strategic analysis as well as identification of core capabilities.

Keywords: Telecom Sector, India, Growth Strategy, Sustainable

IIMC Working Paper: 328-1998 (February) 2

Telecom Sector: Achieving Sustainable Corporate Growth

Introduction
According to Chandler, strategy can be defined as the determination of basic long-term
goals and objectives of an enterprise, and the adoption of courses of action and the
allocation of resources necessary for carrying out these goals. Strategy includes important
decisions pertaining to expanding the volume of activities, entering new businesses and
markets, defining and building the competitive posture of the firm in various markets. Most
organisations desire to grow in terms of sales, value added, people, profits, resources and
market capitalisation. Evidences from empirical literature show that growth is one of the
key variables in determining the share holder value. For maintaining the organisational
vitality, growth is necessary. In fact, it will be difficult to survive the attack of the
competitors in the present day dynamic and complex environment if the firms growth is
stymied. With no compensating growth areas, it is possible that the organisation will
decline. It might even become unviable. Thus, the importance of corporate growth cannot
be over-emphasised.

Sustainable growth essentially refers to being successful at developing well defined growth
plans, while avoiding the risk of drifting through wrong directions, missing the opportunities
along the way. Along with growth, come the various issues of co-ordination, integration and
internal consistency between various divisions and business units. Firms that fail to cope up
with the challenges and changes brought about by growth can lose their positions in their
respective markets. This is why sustaining the development and successfully operating the
business without running the risk of going out of rails make important aspects of strategy
design.

A growing organisation will be able to challenge and suitably reward the employees with
attractive compensation and responsibilities. This will lead to retention of talent which in
turn makes the organisation an exciting place to work and creates a positive development
environment. This will result in good corporate performance which facilitates the
accumulation of reserves that can guarantee the sustainability of the development scheme.

Whatever the specific character of the expansion strategies of a firm, the important point is
that it must be based on sound situational analysis which identifies the relevant
opportunities provided by the environment. One sector in India where there is huge
potential for sustainable growth is the Telecom sector. With a telephone density of 1%,
Indian telecommunication industry has to go a long way before catching up with developed
countries. The telephone culture is growing and the recent growth in public access to
telephone facilities, at least in the cities can be called revolutionary by Indian standards.
But then in a sector with profound technological developments, India is admittedly a late
starter and a slow runner. Over the past couple of years, the Indian government has been
trying to clear bottlenecks in the telecom sector with a kind of urgency never seen before.
The reason being the importance given to Infrastructure in the country in the post-
liberalisation period.

As a virtual beginner, Indian telecommunication sector offers enormous investment

opportunities to the tune of Rs. 1800 billion if we include the service as well as
manufacturing potential in the basic, cellular and value-added segments. Generally a
monopoly, the sector is technologically intensive and is characterised by decreasing costs of
operation with increasing scale and scope economies.

Framework For Achieving Sustainable Corporate Growth

The process of designing and implementing successful approaches directed towards

development should have elements of look-ahead into the future as well as feedback and
learning from past experiences. An overall sense of direction can be obtained from the
IIMC Working Paper: 328-1998 (February) 3

mission statement which in itself should have been defined to include expansive product-
market scope. The essential role of the mission statement is to provide employees,
customers and other organisational stake-holders with both an identity and an
understanding of growth directions. It should reflect the essence of business - for example,
we are in the business of facilitating communications. This example indicates the wide
scope of businesses from manufacturing to marketing communication services. By not
committing explicitly to any particular technology or product-market, the mission statement
provides enough room for bold aspirations.

The design of strategy typically involves a set of assumptions about the current market
potential and perceptions about future prospects. Here, the capabilities of the top
management of the firm to correctly identify the impending advances in the industry will be
useful. The perceptions and the outlook of the top management should be shared by all the
members of the organisation. This will ensure that the organisational context will be exactly
similar from the point of view of all those who participate in the running of the business. By
shared context, it means the beliefs about the key uncertainties, likely path of evolution
and areas where the firm can be profitable.
IIMC Working Paper: 328-1998 (February) 4

FIGURE : FRAMEWORK FOR SUSTAINABLE CORPORATE GROWTH

Futuristic Partnering
Deal-Making
Aspirations Spotting Acquisitions
Customer Analysis Fund - Raising
Market Analysis Corporate Wide Product Leadership
Competitor Analysis Mission Market Definition Customer Orientation
Environment Analysis Risk Management
Organisation Structure
Organisation Culture
Image Building
Strategic Analysis
Sustainability of
Growth
Grooming the
Competency Based Organisation for Growth
Initiatives

Implementation
Sequence

Learning From Successful

and Failed Steps
IIMC Working Paper: 328-1998 5

Strategies for endurable expansion should be rooted on sensible strategic analysis based on
the firms distinctive abilities and competencies (refer figure). Based on this analysis,
appropriate implementation sequence has to be identified. The success and failure of the
sequence of initiatives should provide valuable learning which acts as the most important
ingredient in the organisational building activities. This learning is also essential in pointing out
the errors made in the strategic analysis as well as the identification of core capabilities.

STRATEGIC ANALYSIS

Strategic analysis should be purposeful, focusing only on what is most important and relevant
for strategy development. The main components of this analysis include customer analysis,
market analysis, competitor analysis, and environment analysis. While the above components
are typically external to the organisation, internal analysis of the firms strengths and
capabilities will also play a major role in devising a successful plan of action consistent with the
identified opportunities.

Customer Analysis
The first step in customer analysis is to identify the organisations customer segments and how
well they are being served. In telecom industry, the cream of the clientele is restricted to the
top 10-20 % of the subscriber base. The battle will be to gain control over this segment which
makes the maximum number of out-going calls and avails of specialised services. In India, this
segment is mainly constituted by the government agencies and commercial organisations of
Mumbai and Delhi circles.

Other aspects of customer analysis involve the customer motivation and identification of unmet
needs. While the business clients have a given set of needs and objectives for using the
communication network, the requirements of an individual customer would be totally different.
The business client would be interested in instant connectivity, reliability, added service
features not bothering much about the price. The individual would be much more interested in
less expensive no-frills service. Hence, the changes in customer motivation should be
constantly monitored and taken care of.

A problem based need identification approach can be adopted to develop a list of potential
problems from which unmet needs of customers will be satisfied. For example, the non
availability of faxing services for variable sizes and colours of documents may be a genuine
problem faced by corporate customers. Customer satisfaction studies can also be conducted to
pin-point the benefits derived from the existing services and to list those features currently not
delivered.

Market Analysis
Market analysis is intended to determine the key success factors. One way to detect key
success factors is to analyse the value added by various stages of production/ services and
monitor the changes. Technology, fund raising and marketing appear to be the key factors in
this sector.

Access to technology through collaborations and joint ventures in the short term and
indigenous research & development in the long-term will enable a firm to keep up with the
pace of technological changes. With the arrival of digital electronic exchanges and
improvement in the switching equipment technology, efficiency levels and cost equations in the
industry have radically changed. Similar examples of the impact of technology justifies its
importance as a key factor.
IIMC Working Paper: 328-1998 6

The capital intensiveness of the sector comes from the need for paying huge licence fees and
for setting up the necessary infrastructure like laying lines and importing/ manufacturing
telecom equipment. Since the sector is characterised by high fixed costs and low variable
costs, it is possible to take advantage of economies of scale and leverage strategies based on
the experience curve. Some of the financing options to be evaluated while considering the
funding decisions are as follows : IDA funds; cross border and domestic leasing; export credit;
term loans from banks and FIs; and issues in the capital markets. Some of the new avenues
that are being contemplated include financial alliances; consortium lending and placement with
long term players such as insurance and pension funds. Financial alliances with international
financing institutions and banks will provide the much needed seed capital to start with and
enhance the credit standing of the firm in the international capital markets. This in turn will
bring down the total cost of finance for the largely debt oriented capital structure of the firm.

The inculcation of awareness in the minds of customers regarding the firms brand and product
features is a critical element of marketing strategy. The product portfolio selection and related
promotional efforts have a considerable impact on the profitability of the firm. This will also
affect investment decisions and competitive standing of the firm in the market. The main issue
in distribution is related to who will dominate the standards and protocols for communication.
Other relevant questions corresponding to the distribution of telecom services are : What are
the trends? What channels are growing in importance and What new channels are likely to
emerge? Who has the power in the channels and how is that likely to change? While searching
the answers for these questions two issues emerge primarily - trends in the Internet as the
new age communication tool and the existing powers vested with DoT and TRAI in controlling
the existing nation-wide infrastructure and hence the distribution channels. However, there is
still lots of scope for the individual players to further improve the accessibility of the facilities -
by setting up private fax/ telephone booths, cybercafe and providing niche-market services.

Sustainable expansion in sales can be achieved through increasing existing market share,
increasing product usage, increasing frequency and quantity of usage. This can be achieved by
giving bulk user discounts and frequent-user concessions. New uses for existing products/
services and product feature additions will also increase the sales turnover to a large extent.
Product feature additions could be either for enhancing functionality (such as collect call
facilities, ask me data base services) or for increasing customer satisfaction (politeness,
prompt response, timely reminders). Providing new generation services like video telephone
and teleconferencing will also place the firm ahead of its competitors. Two other outcomes of
the market analysis process pertains to geographical expansion and vertical integration.
Bidding for multiple circles and alliances with service providers of other circles will give wider
geographical coverage. Entering into trading/ manufacturing of telecom equipment, taking up
turnkey projects and diversifying into related fields like telecom and Internet software can also
be a part of the growth strategy.

Competitor Analysis
Understanding the existing strategies and strengths/ weaknesses of competitors will suggest
areas that merit retaliation and response. It might even provide viable alternative strategies. A
competitor analysis will result in the specification of some strategic questions which need close
monitoring over time. Competitors may be analysed along six dimensions viz., size, growth
and profitability; competitors objectives and assumptions; current and past strategies;
competitors organisation and culture; cost structure and exit barriers; strengths and
weaknesses;. For example - if the competitor takes bimonthly payments - the firm can offer
innovative payment mechanisms by taking advance deposits deducting the bill amounts from
time to time and paying nominal interest on the advances taken. This will also reduce the firms
working capital requirements and will be a good short term funding arrangement. While the
IIMC Working Paper: 328-1998 7

current and past strategies of the competitors indicate the likely evolution of the industry, the
analysis of their cost structure and exit barriers provides insights into their survival power and
retaliation capabilities.

Environment Analysis
Environment analysis mainly pertains to social, economic and political issues. An ability to
anticipate and adapt to important changes in these areas will result in high pay-offs.
Predictions can be significantly improved if the analysis is broken down into various
components. For example, instead of attempting to forecast the trends in the overall demand
for cellular services, it would be easier to identify the demand patterns for various segments
such as government, defence, corporates, youngsters, and professionals. Another
methodology, cross impact analysis can be used to determine the intensity of the impact of
developments in one environmental variable on others. Consider a situation of severe
devaluation of Indian Rupee. As a result of this economic development, the export earnings of
manufacturing firms will increase. Similarly, a change in the political scenario leading to stable
government will enable the firm to commit to a particularly strategy without having the fear of
frequent policy changes. The existent and emerging trends in lifestyles, fashions and fads will
have a significant impact on the growth potential of any firm in the telecom industry. The
validity of the above statement appears to be on the increase as we are witnessing the growth
of upper middle class and their higher standards of living.

Competency Based Initiatives

Strategy aimed at growth should be based on a thorough understanding of the typical

competencies possessed by the firm. Here, the competencies should be such that it is specific
only to the firm and not possessed by other competitors. There should be a match between the
growth opportunities identified and the special capabilities of the firm, so that the firm can
expect to perform better than its competitors. Hence, the two elements of competency based
initiatives involve identifying a landscape of opportunities and arriving at the capability
platforms from which the new growth strategies are to be launched.

Search for Opportunities

Multiple opportunities arise from time to time within the core business of the firm and in
related areas. Apart from incremental modifications in technology, the output produced by
R&D team of the firm (or its collaborators) can be used to design and offer products/ services
specific to various consumer needs. Identification of improper distribution of services across
different areas within and outside the country can provide the best guidelines for expanding
geographically. Moreover, the firm should constantly review the value delivery processes and
redesign them if required. To take an example, designing of smart telephones with capacity to
automatically route queries, filter calls, speech-sensitivity, store messages, can change the
way in which the user communicates with other parties and accesses information.

Two other factors that have to be considered in spotting growth opportunities include the
possibility of using existing excess resources and the transferability of skills acquired through
one business to related businesses. A communication company can use its existing bandwidth
capacity to provide leased line services to heavy users of Internet facilities. Expertise acquired
in messaging and routing cellular and pager messages can be used to develop new software
and hardware facilities to provide news services to individual customers according to their
areas of interest.
IIMC Working Paper: 328-1998 8

Capability Platforms
The building blocks for the sustainable growth of a firm are its capability platforms based on its
special relationships, special assets and distinctive competencies. Establishing long-term
relations with regulatory authorities can play an important role in early entry/ exit decisions
much ahead of other players. Co-operative relationships between service providers of different
circles can enable each of them to access complementary resources. This is also true for
different service providers within a given circle, for example - the customers of a cellular
service provider can be serviced by the licence holder of basic services and vice-versa.

The existence of special physical as well as intangible assets will also help a firm to gain
superior competitive position in the market. In the telecom sector, licences of prized circles,
physical infrastructure (like lines), favourable contracts/ agreements, brand names/characters
and customers perception of service attributes are the privileged assets.

Negotiation skills, legal skills, patented technology, project execution and process control skills
are some of the distinctive competencies that a firm can leverage on. In this industry, good
Management Information Systems (MIS) can go a long way in enabling the firm to deliver the
goods. The capability to maintain customer information and offer software based support
services form an important part of the MIS strengths.

Implementation Sequence And Learnings

Growth objectives can be achieved by visualising and implementing the plans through a
sequence of steps. The scope of each step can range from improving the operational efficiency
to acquiring a foothold in a new business. Each step should be logically consistent, not beyond
the firms capability and has to have a contingency plan to tackle adversities. For example, the
various steps that a firm may employ include the following. The firm

Starts its own basic services by using others (say leased) infrastructures in its own circles
Builds its customer base by extending geographical reach through acquisitions and/ or
alliances with other circle providers
Builds its own infrastructure simultaneously
Offers value added services and builds brand loyalty
Manufactures & markets telecom equipment
Starts bidding for turnkey installations
Exports telecom equipment
Builds a global manufacturing, marketing and R&D capability
Diversifies into related activities

An important character of a successful firm is its willingness to accept mistakes and internalise
the learnings obtained from previously flawed steps. Take the case of a firm consistently failing
in its bidding exercises inspite of good technology and project execution expertise. The reason
for failure could be the lack of its reputation regarding its financial strength. An analysis of this
situation will result in a learning that should force the firm to have a partnership with a
financial institution and/ or an international bank for bidding. A thorough review of successful
initiatives is also important because success could have come by chance factors than the
employment of a correct strategy. This will prevent the firm from blindly following the
previously successful approaches without knowing how and why it worked.
IIMC Working Paper: 328-1998 9

Organisational Grooming For Growth

Growth involves continuous changes which requires constant readjustment and reorientation
on the part of the members of the organisation. Hence, the organisation needs to have the
right culture that supports and encourages growth mentality. Some of the key skills that a firm
should strive to acquire in order to succeed in its growth strategies are discussed below. It is
these skills which will determine the capability platform for the firm in future. So, every effort
should be made in order to nourish these skills for growth to be sustainable. The relevance of
these skills in the telecom sector are also explained below. Organisational grooming essentially
refers to taking stock of the skill base of the firm at a given point in time and involves
development of those that are lacking.
Partnering - Various organisations that may have partnerships with the telecom firm are
foreign majors, financial institutions, research centres, educational institutions and
government agencies. The firm should have systems and procedures to solicit alliances and
respond to partnership proposals.
Deal Making and Negotiation - The firm should have people with expertise in legal and
regulatory issues. Experienced officers and telecom sector experts can be attracted through
offers of permanent positions and/ or they can be retained in an advisory capacity. The
firm should be adept at structuring contracts with parties such as government agencies and
private customers.
Spotting Acquisitions - The prime motive for growing through acquisitions is that
opportunities can be seized without loss of time. Since an existing player is being acquired
(rather than installing new capacity), the retaliation of the competitors will be less severe.
These advantages can be realised only if the firm possesses the ability to access
information, expedite decisions and react quickly.
Fund Raising - Because of the capital intensive nature of the sector, fund raising
capability assumes a position of importance. Reputation of the promoters and senior
managers has a significant bearing on the credit standing of the firm. Moreover, the firm
should adopt healthy financial practices and maintain good relationships with institutional
investors and investment bankers so that it can draw upon their resources whenever needs
arise.
Leadership - The inspirational vision and substantiative involvement of CEO and top
management should drive the organisation on a growth path. The decisions and actions of
the top management should indicate profitable growth as the main agenda. Also, the views
of senior managers should be carefully communicated to all members of the organisation
without any inconsistency.
Customer Orientation - Growing firms have a tendency to become bureaucratic and
monolithic. The greatest danger associated with this development would be that the firm
would turn insensitive to the needs of customers. Care should be taken to avoid this and
keep the firm in tune with the likes and dislikes of the customers.
Risk Management - Organisations that desire to grow at a rapid pace in todays
increasingly sophisticated and competitive economies must of necessity be concerned
about business risks, financial risks and socio-political risks. Business risk refers to the
inability of a company to maintain its competitive position and the stability of its earnings.
If the financial structure of a company tends to make earnings unstable, the company may
fail financially. Socio-political and regulatory risks arise when an otherwise profitable
investment is impaired as a result of adverse legislation, harsh regulatory climate or
nationalisation by a socialistic government. For managing the above risks, one must clearly
identify the risk, quantify the risk in terms of subjective probabilities and prepare
contingency plans to tackle uncertainties.
Growth Oriented Organisation Structure and Culture - A key ability is to use
structure to help create small enterprise answerability, at the same time retaining the
IIMC Working Paper: 328-1998 10

ability to leverage the corporate scale. It is also important to design an incentive structure
that rewards performance. Finding people with growth mentality and placing them in key
management positions are critical for growth.
Image Building - Image building mainly consists of three tasks. One, market signalling
regarding growth plans. Two, management of market expectations in terms of economic
value added and profitability. Three, building companys reputation through socially
responsible acts.

CONCLUSION

Sustainable growth is possible only if the firm strives to accumulate abilities which would
enable it to have a strong competitive position in the future, so that it is not wiped away by the
tides of change. Indian telecom sector though characterised by all its uncertainties and
regulatory constraints is a promising idea, whose time has come. A firm with the right attitude
has rarely been faced by such an array of opportunities.

Some of the areas where the firm needs to concentrate on are - financing, technology and
marketing. Financing needs are to be formulated with utmost care and imagination, so as to
avoid undue hurdles. Fortunately, technology is driving costs down. But in a sector driven by
technology like no other, shrewd forecasting and timely absorption of new technology would be
necessary. In a market driven environment, where the user is supreme, the well-respected
principles of marketing would have to be meticulously applied. All said and done the firm
should prepare itself to handle the instabilities and challenges it may encounter while
traversing a growth path.

REFERENCES

1. Aaker, David A. Developing Business Strategies, 1984, John Wiley & Sons Inc.
2. Express Investment Week, Telecom in Maharastra, Mar. 13, 1995, Indian Express Newspapers Ltd. pp.
14-15.
3. Express Investment Week, Telecom turmoil, Sep. 25, 1995, Indian Express Newspapers Ltd. pp. 8-9.
4. Express Investment Week, Telecom race, Jan. 20, 1997, Indian Express Newspapers Ltd. pp. 17-27.
5. Express Investment Week, Telecom cables, Apr. 28, 1997, Indian Express Newspapers Ltd. pp. 20-31.
6. Gerloff, Edwin A. Organisational theory and design, 1985, McGraw Hill Book Co., pp. 48-107.
7. Gupta, Rajat K. New perspectives of growth, New realities - new priorities, 1996, 26th International
Management Symposium St. Gallen, pp. 65-76.
8. Malhotra, S. V. Determination of share prices in India, 1994, pp. 1-16.
9. Srinivasan, T. S. Financing the telecom sector, The Journal of Indian Management & Strategy 8M, Jan
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10.Goyal R. N. and Goyal K. Madhya Pradesh telecom experience, The Journal of Indian Management &
Strategy 8M, Apr. - Jun. 1997, Vol. 2[2], pp. 11-13.
Note: Cross-references have not been included.